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iPhone App Store Turns 1. What Have We Learned?

App Store

Almost three decades ago, a cover story about Steve Jobs in Inc. magazine carried the headline "This Man Has Changed Business Forever."

Some 28 years later, Apple's CEO is still changing the rules of the game.

This Friday, Apple (NASDAQ: AAPL) celebrates the one-year anniversary of the App Store for the iPhone. By almost any measure, it's been the very definition of a runaway hit. If its own success (more than a billion downloads and more than 60,000 applications) isn't enough, the fact that competitors are falling over themselves trying to copy and catch up to the App Store model should be.

"I think some of the other online app stores are keeping up as far as having a base set of features like being able to search for applications, but no one else has the ease of purchase, the catalog size and the power and flexibility of the iPhone," said iPhone developer consultant Raven Zachary.

"What's really sad from a competitive standpoint is that the other big smartphone players could have done an e-commerce platform years ago, but it really took Steve Jobs and Apple to figure out how to navigate and negotiate the right deal with the carriers," Zachary told InternetNews.com.

The App Store's debut came as part of the big iPhone 3G launch with what seems now like a modest 500 applications. By comparison, the new Palm Pre, which debuted last month, offers a few dozen applications.

A few months before launch, Jobs said Apple would be happy to break even on the App Store because its main goal was to sell iPhones. The company announced that developers would get to keep 70 percent of whatever they want to charge for their applications, with Apple keeping the remaining 30 percent for hosting, marketing and distribution. Thousands of iPhone Apps are free.

"This is the best deal going for distributing mobile applications," Jobs said in March, 2008.

Zachary says whether the App Store is now a significant revenue generator for Apple directly, the rollout wildly exceeded anyone's expectations, including Apple's. "Now they're up to over 50 million devices [including the iPod Touch]. "There are thousands of developers and dozens of companies focused on the iPhone market that have emerged in the past 12 months," he said. "There are jobs being created because of the iPhone. It's one of the few bright spots in this down economy."

Apple's in control

Analyst Maribel Lopez thinks Apple's edge has been a broader vision that extends beyond the device. "When Apple thinks about a product, they think about the entirety of the ecosystem," Lopez, CEO of Lopez Research, told InternetNews.com.

Now that Android, RIM (BlackBerry), Microsoft and others have online storefronts, Apple needs to push its competitive edge. Lopez thinks Apple has a running start. "The other guys have to walk before they can run. They have to prove themselves.

Apple's already raised the bar in the recent 3.0 release of the iPhone OS which includes an "In-App Purchase" e-commerce feature that lets developers sell software within an application. One example of an In-App Purchase could be a game developer offering access to higher levels with the game.

Lopez says the iPhone may not be the easiest platform for some developers and Apple's kept a tight reign on controlling the experience. "That's something Apple has never compromised on, but they're good at it. They've pretty well established the price points for apps, for example at $1 to $3. You can charge $15, but it better be critical to some group of customers if it's going to succeed."

Both Lopez and Zachary agree that if there's one weakness with the App Store model it's that it's been so successful apps can be hard to find on the iPhone. "I feel bad for the guy whose application is 51 on one of the top 50 lists, because it's hard to break through and I've found some very good apps that aren't on those lists," said Zachary.

Lopez thinks social networks may eventually help with the "findability" issue.

"I might want to know what the people I follow on Twitter, for example, are using," she said. "Or maybe Facebook pages will start having the top ten iPhone apps they use. I think there's opportunity there to find the applications you're looking for more organically through social networks."